Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 8
Statement of Operations ............... 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 12
</TABLE>
Page 1:
Letter to Shareholders
June 16, 1995
Dear Shareholder:
During the six-month period covered by this report, November 1, 1994 through
April 30, 1995, we saw the close of a challenging and difficult year in the
financial markets -- and the beginning of a new year, with renewed optimism and
strength on many fronts.
Market Overview
Most of 1994 was a difficult period for fixed-income investors as the Federal
Reserve Board's crusade against inflation drove interest rates markedly higher.
The yield on 30-year Treasury securities, for example, climbed from 6.35 percent
as the year began to a high of 8.16 percent by early November. As interest rates
rose, fixed-income investments declined in value.
The fixed-income markets have rebounded considerably since late 1994, however,
with growing confidence that the Fed's inflation fighting initiatives have taken
hold. The yield on 30-year Treasury securities fell to 7.34 percent by the end
of April 1995 and to approximately 6.50 percent at the time of this writing.
This rate reversal has pushed bond prices back to February 1994 levels. Closed-
end municipal bond funds, in particular, have been among the greatest
beneficiaries in this rally, earning back virtually all of last year's losses
and posting attractive returns.
Performance Summary
The Trust achieved a six-month total return of 21.54 percent <F1>, based on
market price, for the period ended April 30, 1995. This robust performance can
be partially attributed to the Trust's leveraged capital structure, which has
helped it to more fully benefit from a fall in long- term interest rates over
the last six months. While leveraging adds certain financing risks and
volatility, it is designed, over time, to provide shareholders with enhanced
returns by taking advantage of the yield differential between long-term and
short-term interest rates.
Clearly, the Trust recovered from the difficult previous six-month period and
made significant price gains. The Trust's closing stock price, for example,
gained more than 17 percent from its $12.875 level on October 31, 1994, to
$15.125 on April 30, 1995. As the graph on the following page shows, we've also
seen the Trust's net asset value rebound during the last six months.
Although intermediate- and long-term interest rates eased during this
reporting period, short-term interest rates have remained persistently high,
placing continued pressure on the Trust's preferred rates and common dividend.
The Trust was able, however, to sustain its annualized dividend level in this
environment at $0.996 per common share, which represents a tax-exempt
distribution rate of 6.59 percent <F3>, based on the closing stock price of
$15.125 per share on April 30, 1995. For Pennsylvania residents in the
combined marginal tax bracket of
[Photo]
Dennis J. McDonnell and Don G. Powell
(Continued on page two)
Page: 2
37.80 percent, this distribution rate represents a yield equivalent to a
taxable investment earning 10.59 percent <F4>.
Outlook
The outlook for fixed-income securities appears favorable. To date, inflation
remains under control, and recent economic data continues to suggest a slowdown
in the economy. First-quarter gross domestic product, for example, grew at an
annual rate of 2.8 percent, substantially lower than its fourth-quarter rate of
5.1 percent last year. Many analysts now expect GDP to grow at an annual rate
between 1 and 2 percent in the second half of this year. Should this scenario
play out, we suspect that the Fed is more likely to lower than raise short-term
rates, which would be a positive development for all fixed-income investors.
Regarding the municipal market, we remain optimistic about the current supply-
and-demand dynamics. With much of the refinancing by munici pal issuers behind
us,we expect new-issue supply to remain low in 1995 and demand for municipals to
be steady, if not strong. A decline in supply combined with steady demand should
end price stability and price support to this market. We believe the Trust will
continue to provide shareholders with long-term value as we seek to maintain a
high level of current income over time.
[Graph]
Trust Rebounds in 1995
<TABLE>
COMPARISON OF NAV AND MARKET PRICE OF THE TRUST
<CAPTION>
Measurement Market
Period NAV Price
<S> <C> <C>
30-Apr-94 $15.95 14.625
31-May-94 $16.18 15.375
30-Jun-94 $15.82 14.875
31-Jul-94 $16.28 15.250
31-Aug-94 $16.24 15.250
30-Sep-94 $15.66 14.250
31-Oct-94 $15.02 12.875
30-Nov-94 $14.41 13.375
31-Dec-94 $15.01 13.000
31-Jan-95 $15.63 14.500
28-Feb-95 $16.20 15.000
31-Mar-95 $16.24 15.125
30-Apr-95 $16.12 15.125
</TABLE>
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that reflects our new identity as Van Kampen American
Capital. Going forward, we will continue to look for new ways to improve upon
the presentation of information in your Trust's report. In addition, we have
developed a new corporate advertising campaign introducing Van Kampen
American Capital. Full page ads appeared in The Wall Street Journal in the
first quarter of 1995 -- watch for more advertising throughout the year.
We look forward to communicating with you on a regular basis, providing
information about your Trust's performance, new investment opportunities, and
our newly created company. We appreciate your continued confidence in your
investment with Van Kampen American Capital.
Sincerely,
Don G. Powell, Chief Executive Officer
Van Kampen American Capital Investment Advisory Corp.
Dennis J. McDonnell, President
Van Kampen American Capital Investment Advisory Corp.
Page: 3
Performance Results for the Period Ended April 30, 1995
Van Kampen Merritt Trust For Investment Grade Pennsylvania Municipals
(NYSE Ticker Symbol-VTP)
<TABLE>
<CAPTION>
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 21.54%
Six-month total return based on NAV<F2> ........................................... 10.80%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 6.64%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 10.68%
Distribution rate as a % of 04/30/95 closing stock price<F3> ...................... 6.59%
Taxable-equivalent distribution rate as a % of 04/30/95 closing stock price<F4> ... 10.59%
Share Valuations
Net asset value as of 04/30/95 .................................................... $ 16.12
Preferred share rate as of 04/30/95<F5> ........................................... 4.13%
Closing common stock price as of 04/30/95 ........................................ $ 15.125
Six-month high common stock price (04/05/95) ..................................... $ 15.375
Six-month low common stock price (11/10/94) ...................................... $ 12.000
<FN>
<F1> Total return based on market price assumes an investment at the market
price at the beginning of the period indicated, reinvestment of all distributions
for the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing stock price at the end of the period indicated.
<F2> Total return based on Net Asset Value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at net asset value.
<F3> Distribution rate represents the monthly annualized distributions of the
Trust at the end of April 1995, and not the earnings of the Trust.
<F4> The taxable-equivalent distribution rate is calculated assuming a 37.8%
combined federal and state tax bracket, which takes into consideration the
deductibility of individual state taxes paid.
<F5> See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
</TABLE>
Page: 4
<TABLE>
Portfolio of Investments
<CAPTION>
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Pennsylvania 92.2%
$ 9,000 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh
Intl Arpt Ser B (FSA Insd) ....................... 6.625% 01/01/22 $ 9,222,300
1,115 Allegheny Cnty, PA Residential Fin Auth Mtg
Rev Single Family (GNMA Collateralized) .......... 7.100 05/01/24 1,157,883
1,755 Allegheny Cnty, PA San Auth Swr Rev (FGIC Insd) ... * 12/01/15 489,276
1,000 Allegheny Cnty, PA San Auth Swr Rev Ser C
(Prerefunded @ 12/01/01) (FGIC Insd) ............. 6.500 12/01/16 1,083,290
4,070 Armstrong Cnty, PA Hosp Auth Hlth Cent Rev
Canterbury Pl Proj Rfdg (MBIA Insd) ............... 6.500 12/01/21 4,176,919
2,675 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A .................... 7.500 11/01/16 2,439,627
2,000 Armstrong Cnty, PA Hosp Auth Hosp Rev Saint
Francis Med Cent Proj A Rfdg (AMBAC Insd) ........ 6.250 06/01/13 2,021,940
1,000 Beaver Cnty, PA Hosp Auth Rev Med
Cent Beaver, PA Inc (AMBAC Insd) ................. 6.625 07/01/10 1,055,040
5,000 Berks Cnty, PA Muni Auth Rev Highlands
at Wyomissing Proj B .............................. 6.875 10/01/17 5,144,200
3,000 Bethlehem, PA Auth Wtr Rev
(Prerefunded @ 11/15/01) (MBIA Insd) .............. 6.250 11/15/21 3,200,190
2,880 Blair Cnty, PA Hosp Auth Rev Altoona
Hosp Proj (AMBAC Insd) ........................... 6.500 07/01/22 2,954,621
5,630 Blairsville-Saltsburg Sch Dist PA Ser 1992
(Prerefunded @ 05/15/02) (MBIA Insd) .............. 6.500 05/15/16 6,060,470
5,000 Bristol Twp, PA Sch Dist Ser A
(Prerefunded @ 02/15/02) (MBIA Insd) .............. 6.625 02/15/12 5,503,850
1,200 Delaware Cnty, PA ................................. * 11/15/04 703,644
2,150 Delaware Cnty, PA ................................. * 11/15/05 1,182,393
2,160 Delaware Cnty, PA ................................. * 11/15/06 1,111,147
1,565 Delaware Cnty, PA ................................. * 11/15/07 751,748
1,000 Delaware Cnty, PA ................................. * 11/15/08 447,750
1,665 Delaware Cnty, PA ................................. * 11/15/09 693,706
815 Delaware Cnty, PA ................................. * 11/15/10 315,413
1,270 Delaware Cnty, PA ................................. * 11/15/11 460,908
1,030 Delaware Cnty, PA ................................. * 11/15/12 350,406
1,800 Exeter Twp, PA Sch Dist (FGIC Insd) .............. * 11/15/13 573,786
5,200 Falls Twp, PA Hosp Auth Hosp Rev
Delaware Vly Med Rfdg (FHA Insd) ................. 7.000 08/01/22 5,392,660
4,000 Franklin Cnty, PA Indl Dev Auth Hosp Rev
Chambersburg Hosp Proj (FGIC Insd) ................ 6.250 07/01/22 4,016,160
See Notes to Financial Statements
</TABLE>
Page: 5
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 2,500 Governor Mifflin PA Sch Dist
(Prerefunded @ 02/01/02) (AMBAC Insd) ........... 6.500% 02/01/13 $ 2,675,600
2,500 Interboro Sch Dist PA Delaware Cnty
Rfdg (MBIA Insd) ................................ 6.600 10/01/12 2,620,650
5,250 Lancaster Cnty, PA Hosp Auth Rev Lancaster
Genl Hosp Proj (AMBAC Insd) ..................... 6.125 07/01/12 5,272,050
1,600 Lancaster, PA Higher Edl Auth College Rev Franklin
& Marshall College Proj (MBIA Insd) ............. 6.700 04/15/12 1,686,160
2,715 Langhorne Manor Boro, PA Higher Edl & Hlth Auth
Rev Woods Sch (Connie Lee Insd) .................. 6.500 11/15/14 2,768,567
4,000 Lehigh Cnty, PA Genl Purp Auth Rev
Good Shepherd Rehab Hosp ......................... 7.500 11/15/21 4,055,040
2,000 Lehigh Cnty, PA Genl Purp Auth Rev Lehigh
Vly Hosp Inc Ser A Rfdg (MBIA Insd) ............. 6.500 07/01/10 2,099,760
1,000 Lower Providence Twp, PA Swr Auth Swr Rev ....... 6.750 05/01/22 1,020,640
2,000 Luzerne Cnty, PA Ser B (FGIC Insd) ............... 6.000 09/15/11 2,000,740
4,250 Media Boro, PA Gtd Wtr Rev Rfdg (MBIA Insd) ..... 6.600 01/01/22 4,405,507
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (Embedded Cap)
(AMBAC Insd) <F2> ................................ 6.000 06/01/16 2,970,270
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj .................. 7.350 11/15/05 1,035,150
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj .................. 6.875 11/15/20 964,470
4,500 Montgomery Cnty, PA Higher Edl & Hlth Auth Rev
Saint Josephs Univ (Connie Lee Insd) ............. 6.500 12/15/22 4,606,155
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Ser E Rfdg (MBIA Insd) ...................... 6.700 12/01/21 1,047,070
5,000 North Allegheny, PA Sch Dist Ser A Rfdg
(AMBAC Insd) .................................... 6.350 11/01/12 5,110,550
1,000 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd) ..... 6.875 11/01/19 1,085,050
350 Northeastern York Cnty, PA Sch Dist Ser B
(FGIC Insd) ...................................... * 09/01/09 147,637
500 Northeastern York Cnty, PA Sch Dist Ser B
(FGIC Insd) ...................................... * 03/01/10 202,025
885 Northeastern York Cnty, PA Sch Dist Ser B
(FGIC Insd) ...................................... * 09/01/10 346,832
500 Northeastern York Cnty, PA Sch Dist Ser B
(FGIC Insd) ...................................... * 03/01/11 189,475
4,820 Northhampton Cnty, PA Hosp Auth Rev
Easton Hosp Ser A (MBIA Insd) .................... 6.250 01/01/11 4,924,016
See Notes to Financial Statements
</TABLE>
Page: 6
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 9,000 Northumberland Cnty, PA Auth Comwlth
Lease Rev Correctional Fac (MBIA Insd) ............... *% 10/15/11 $ 3,411,360
5,000 Pennsylvania Hsg Fin Agy Single Family
Mtg Ser 34B ........................................... 7.000 04/01/24 5,160,100
1,750 Pennsylvania Infrastructure Invt Auth
Rev Pennvest Subser B ................................. 6.800 09/01/10 1,857,817
2,750 Pennsylvania Intergvtl Coop Auth Spl Tax Rev City of
Philadelphia Funding Pgm (Prerefunded @ 06/15/02) ..... 6.800 06/15/12 3,026,320
6,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev City of
Philadelphia Funding Pgm (MBIA Insd) .................. 5.600 06/15/15 5,647,800
6,700 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd) ..................... 6.400 03/01/22 6,703,886
2,660 Pennsylvania St Higher Edl Fac Auth College & Univ
Rev Temple Univ 1st Series (MBIA Insd) ............... 6.500 04/01/21 2,734,320
3,000 Pennsylvania St Higher Edl Fac Auth Rev Philadelphia
College Osteopathic (Connie Lee Insd) ................ 5.375 12/01/18 2,678,130
1,020 Pennsylvania St Ser A ................................. 6.500 11/15/10 1,071,194
3,000 Pennsylvania St Ser 1 ................................. 6.375 09/15/12 3,109,170
1,750 Pennsylvania St Tpk Comm Tpk Rev Ser L
(AMBAC Insd) ......................................... 6.250 06/01/11 1,783,197
395 Philadelphia, PA Gas Wks Rev .......................... 6.750 01/01/15 411,720
105 Philadelphia, PA Gas Wks Rev (Prerefunded
@ 01/01/99) (AMBAC Insd) ............................. 6.750 01/01/15 113,614
5,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA Insd) ..... 6.250 07/01/08 5,151,200
500 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev Temple Univ Hosp Ser A ...................... 6.625 11/15/23 490,245
2,980 Philadelphia, PA Redev Auth Hsg Rev Rfdg ............. 6.875 02/01/24 3,071,039
1,710 Pottstown Boro, PA Auth Swr Rev Gtd (FGIC Insd) ....... * 11/01/13 546,413
750 Reading, PA (Prerefunded @ 11/15/02)
(AMBAC Insd) ......................................... 6.500 11/15/12 817,028
5,000 Saint Mary Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Saint Mary Ser A (MBIA Insd) .......... 6.500 07/01/22 5,129,550
2,220 Silver Spring Twp Auth, PA Swr Rev Gtd (FGIC Insd) ... 6.700 07/15/21 2,361,814
1,750 West Allegheny, PA Sch Dist Ser AA (AMBAC Insd) ....... 6.250 02/01/14 1,775,235
7,090 Westmoreland Cnty, PA (AMBAC Insd) ................... * 08/01/15 2,090,628
3,545 Westmoreland Cnty, PA (AMBAC Insd) ................... * 08/01/16 980,086
7,090 Westmoreland Cnty, PA (AMBAC Insd) ................... * 08/01/17 1,833,261
2,000 Wilkinsburg, PA Jt Wtr Auth Wtr Rev Ser B
(AMBAC Insd) ......................................... * 08/15/12 710,920
1,670 Yough Sch Dist, PA Cap Apprec (MBIA Insd) ............. * 10/01/14 502,420
-------------
174,911,208
-------------
See Notes to Financial Statements
</TABLE>
Page: 7
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Puerto Rico 6.4%
$ 6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy
Rev Ser T (Prerefunded @ 07/01/02) .... 6.500% 07/01/22 $ 6,584,400
2,000 Puerto Rico Comwlth Pub Impt
(Prerefunded @ 07/01/02) ............. 6.800 07/01/21 2,225,420
2,000 Puerto Rico Pub Bldgs Auth Gtd Pub
Edl & Hlth Fac Ser K Rfdg ............. 6.600 07/01/04 2,146,740
1,000 Puerto Rico Pub Bldgs Auth Rev Gtd
Ser K (Prerefunded @ 07/01/02) ........ 6.875 07/01/21 1,118,990
--------------
12,075,550
--------------
Total Long-Term Investments 98.6%
(Cost $177,973,710) <F1> ............................................ 186,986,758
Other Assets in Excess of Liabilities 1.4% ......................... 2,604,407
--------------
Net Assets 100% .................................................... $ 189,591,165
--------------
*Zero coupon bond
<FN>
<F1> At April 30, 1995, cost for federal income tax purposes is $177,973,710;
the aggregate gross unrealized appreciation is $9,439,697 and the aggregate gross
unrealized depreciation is $426,649, resulting in net unrealized appreciation of
$9,013,048.
<F2> An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The price of these securities
may be more volatile than the price of a comparable fixed rate security. The Trust
invests in these instruments as a hedge against a rise in the short-term interest
rates which it pays on its preferred shares.
</TABLE>
The following table summarizes the portfolio composition at April 30, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
Portfolio Composition by Credit Quality
<TABLE>
<CAPTION>
<S> <C>
AAA ... 81.6%
AA .... 9.2
A ..... 4.7
BBB ... 3.2
B ..... 1.3
-------
100.0%
-------
</TABLE>
See Notes to Financial Statements
Page: 8
Statement of Assets and Liabilities
<TABLE>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $177,973,710) (Note 1) .................................... $ 186,986,758
Interest Receivable .......................................................................... 3,405,209
Unamortized Organizational Expenses (Note 1) ................................................ 9,530
--------------
Total Assets ................................................................................. 190,401,497
--------------
Liabilities:
Payables:
Custodian Bank ............................................................................... 332,826
Income Distributions - Common and Preferred Shares .......................................... 179,551
Investment Advisory Fee (Note 2) ............................................................. 102,249
Administrative Fee (Note 2) ................................................................. 31,461
Accrued Expenses ............................................................................. 164,245
--------------
Total Liabilities ............................................................................ 810,332
--------------
Net Assets ................................................................................... $ 189,591,165
--------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,400 issued with liquidation
preference of $50,000 per share) (Note 4) .................................................... $ 70,000,000
--------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
7,420,972 shares issued and outstanding) .................................................... 74,210
Paid in Surplus ............................................................................. 109,423,100
Net Unrealized Appreciation on Investments .................................................. 9,013,048
Accumulated Undistributed Net Investment Income ............................................. 1,032,385
Accumulated Net Realized Gain on Investments ................................................. 48,422
--------------
Net Assets Applicable to Common Shares ....................................................... 119,591,165
--------------
Net Assets ................................................................................... $ 189,591,165
--------------
Net Asset Value Per Common Share($119,591,165 divided
by 7,420,972 shares outstanding) ............................................................. $ 16.12
--------------
See Notes to Financial Statements
</TABLE>
Page: 9
Statement of Operations
<TABLE>
For the Six Months Ended April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Investment Income:
<S> <C>
Interest ....................................................... $ 5,838,702
--------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 594,991
Administrative Fee (Note 2) .................................... 183,074
Preferred Share Maintenance (Note 4) ........................... 80,550
Trustees Fees and Expenses (Note 2) ............................ 9,050
Legal (Note 2) ................................................ 9,050
Amortization of Organizational Expenses (Note 1) .............. 2,478
Other .......................................................... 95,564
--------------
Total Expenses ................................................. 974,757
--------------
Net Investment Income .......................................... $ 4,863,945
--------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................ $ 2,562,215
Cost of Securities Sold ........................................ (2,458,431)
--------------
Net Realized Gain on Investments .............................. 103,784
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ....................................... 715,009
End of the Period .............................................. 9,013,048
--------------
Net Unrealized Appreciation on Investments During the Period ... 8,298,039
--------------
Net Realized and Unrealized Gain on Investments ................ $ 8,401,823
--------------
Net Increase in Net Assets from Operations ..................... $ 13,265,768
--------------
See Notes to Financial Statements
</TABLE>
Page: 10
Statement of Changes in Net Assets
<TABLE>
For the Six Months Ended April 30,1995 and the Year Ended October 31,1994
(Unaudited)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
April 30,1995 October 31,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 4,863,945 $ 9,842,137
Net Realized Gain/Loss on Investments ............................. 103,784 (55,362)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 8,298,039 (21,508,113)
---------------- ---------------
Change in Net Assets from Operations ............................. 13,265,768 (11,721,338)
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (3,695,585) (7,391,226)
Preferred Shares ................................................. (1,418,042) (1,891,467)
---------------- ---------------
(5,113,627) (9,282,693)
---------------- ---------------
Distributions from Net Realized Gain on Investments:
Common Shares ..................................................... -0- (243,408)
Preferred Shares ................................................. -0- (66,236)
---------------- ---------------
-0- (309,644)
---------------- ---------------
Total Distributions .............................................. (5,113,627) (9,592,337)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... 8,152,141 (21,313,675)
Net Assets:
Beginning of the Period .......................................... 181,439,024 202,752,699
---------------- ---------------
End of the Period (Including undistributed net investment income of
$1,032,385 and $1,282,067, respectively) ......................... $ 189,591,165 $ 181,439,024
---------------- ---------------
See Notes to Financial Statements
</TABLE>
Page: 11
Financial Highlights
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated.(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 27,1992
Six Months Year Year (Commencement
Ended Ended Ended of Investment
April 30, October 31, October 31, Operations) to
1995 1994 1993 October 31,1992
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period <F1> ............... $ 15.017 $ 17.889 $ 14.914 $ 14.763
---------- ------------ ----------- ---------------
Net Investment Income .................. .655 1.327 1.324 .598
Net Realized and Unrealized
Gain/Loss on Investments .............. 1.132 (2.906) 2.942 .100
---------- ------------ ----------- ---------------
Total from Investment Operations ...... 1.787 (1.579) 4.266 .698
---------- ------------ ----------- ---------------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders ............ .498 .996 .996 .415
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ................. .191 .255 .282 .132
Distributions from Net Realized
Gain on Investments:
Paid to Common Shareholders ............ -0- .033 .010 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ................. -0- .009 .003 -0-
---------- ------------ ----------- ---------------
Total Distributions .................... .689 1.293 1.291 .547
---------- ------------ ----------- ---------------
Net Asset Value, End of Period ........ $ 16.115 $ 15.017 $ 17.889 $ 14.914
---------- ------------ ----------- ---------------
Market Price Per Share at End of Period $ 15.125 $ 12.875 $ 17.250 $ 15.000
Total Investment Return at Market Price
(Non-Annualized) <F2> ................. 21.54% (20.21%) 22.29% 2.72%
Total Return at Net Asset Value
(Non-Annualized) <F3> ................. 10.80% (10.65%) 27.39% 2.56%
Net Assets at End of Period
(In millions) .......................... $ 189.6 $ 181.4 $ 202.8 $ 180.6
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares (Annualized) ............. 1.69% 1.66% 1.60% 1.53%
Ratio of Expenses to Average
Net Assets (Annualized) ............... 1.05% 1.06% 1.02% 1.09%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4> ........ 5.98% 6.45% 6.25% 5.09%
Portfolio Turnover ..................... 1.38% 4.89% 3.99% 3.51%
<FN>
<F1> Net asset value at March 27, 1992 is adjusted for common and preferred
share offering costs of $.237 per common share.
<F2> Total investment return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends in
accordance with the Trust's dividend reinvestment plan.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
</TABLE>
See Notes to Financial Statements
Page: 12
Notes to Financial Statements
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Trust for Investment Grade Pennsylvania Municipals (the
"Trust") is registered as a non-diversified closed-end management investment
company under the Investment Company Act of 1940, as amended. The Trust
commenced investment operations on March 27, 1992.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
A. Security Valuation-Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At April 30, 1995, there were no
when issued or delayed delivery purchase commitments.
C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. Organizational Expenses-The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates ("VKAC") for costs incurred in connection
with the Trust's organization and initial registration in the amount of $25,000.
These costs are being amortized on a straight line basis over the 60 month
period ending March 26, 1997. VanKampen American Capital Investment Advisory
Corp. (the "Adviser") has agreed that in the event any of the initial shares of
the Trust originally purchased by VKAC are redeemed during the amortization
period, the Trust will be reimbursed for any unamortized organizational expenses
in the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
Page: 13
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
E. Federal Income Taxes-It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1994, the Trust had an accumulated capital loss
carryforward for tax purposes of $55,362 which will expire on October 31, 2002.
F. Distribution of Income and Gains-The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the six months ended April 30, 1995, the Trust recognizes expenses of
approximately $7,900 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors of
VKAC. The Trust does not compensate its officers or trustees who are officers of
VKAC.
The Trust has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC. The Trust's liability under the
deferred compensation and retirement plans at April 30, 1995, was approximately
$13,400.
At April 30, 1995, VKAC owned 6,700 common shares of the Trust.
Page: 14
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1995, were $9,362,780 and
$2,458,431, respectively.
4. Preferred Shares
The Trust has outstanding 1,400 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on April 30, 1995, was 4.13%. During the six
months ended April 30, 1995, the rates ranged from 3.50% to 5.10%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
Page: 15
Funds Distributed by Van Kampen American Capital
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
-- High Yield Municipal Portfolio
-- Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
Page: 16
Van Kampen Merritt Trust For Investment Grade Pennsylvania Municipals
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
Investment Adviser
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian and Transfer Agent
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive Chicago, Illinois 60606
Independent Auditors
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive Chicago, Illinois 60601
*"Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C)Van Kampen American Capital Distributors, Inc., 1995 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
